Executive pay caps seen as sign of bad faith

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This was published 14 years ago

Executive pay caps seen as sign of bad faith

By Clancy Yeates

THE head of a public inquiry into executive pay has signalled he is wary of regulating pay caps, the option being championed by the union movement.

The Productivity Commission chairman, Gary Banks, who is advising the Federal Government on the contentious issue, said yesterday most groups he had spoken to said company boards should continue to set the pay of chief executives.

But the Australian Council of Trade Unions has called for the salaries to be capped at 10 times the average worker's pay.

"While such views may have support within the union movement or wider community, they imply a degree of systemic failure and of faith in prescriptive regulatory remedies that seem difficult to reconcile with what has been learnt thus far," Mr Banks told a business audience in Sydney.

He was not opposed to regulation, he said, but cautioned that prescriptive changes could threaten economic growth.

Even the Government initiative to require a shareholder vote on termination payments, which Mr Banks described as "comparatively mild", had sparked an outcry, he said.

A subsequent panel discussion revealed more strident criticisms of the current system and the role of remuneration consultants in recommending high pay packets.

The managing director of the governance advisory firm Regnan, Erik Mather, said even if executive pay plunged in the downturn, this would not affect the boom-year bonuses paid for by members of super funds, who were now suffering.

Mr Mather rejected claims that Australian companies needed to offer extremely high pay to attract global talent, saying the argument was a "disease" imported from the United States.

Ordinary workers had contributed the vast majority of the 3.5 per cent annual growth in capital flows in the Australian sharemarket through compulsory and voluntary superannuation, he said. "What we need is the person on the street saying 'my long-term savings in the capital markets are working for me'."

The Government has previously blamed the financial meltdown on "unrestrained greed in the financial sector".

The Productivity Commission - known to prefer market forces over government intervention - says chief executive salaries have doubled since 2000, compared to a 30 per cent rise in the average worker's wage.

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